Rupiah Predicted to Strengthen as Dollar Impacts Pressure on US Labor Data

JAKARTA - The rupiah exchange rate on Monday 11 December 2023 is expected to strengthen due to the weakening of the US dollar which is motivated by weak US labor market data.

Quoting Bloomberg, on the Rupiah exchange rate on Friday 8 December, the spot rupiah exchange rate strengthened slightly by 0.02 percent to IDR 15,517 per US dollar. Meanwhile, the Jisdor rupiah exchange rate closed up 0.23 percent at the price level of IDR 15,500 per US dollar.

Director of PT Laba Forexindo Berjangka Ibrahim Assuaibi said that job vacancy data and private payroll data show that the US labor market is weakening, which could potentially lead to weaker nonfarm payrolls data for November.

"Signs of a weakening labor market will reduce the Federal Reserve's push to keep interest rates higher for longer. Friday's reading also comes just days before the Fed's final meeting for the year, where the central bank is expected to maintain interest rates," he explained in his official statement Monday, December 11.

Ibrahim said the market was still looking for further clues regarding when the Fed could start reducing interest rates in 2024. Expectations that the interest rate cut could be carried out as soon as March 2024 have encouraged Asian currencies to strengthen in recent sessions.

Domestically, Indonesia's foreign exchange at the end of November 2023 increased by USD 5 billion to 138.1 billion US dollars, compared to the position at the end of October 2023 which was 133.1 billion US dollars.

Ibrahim explained that the increase in foreign exchange reserves was influenced, among other things, by the government's issuance of global bonds and withdrawal of government foreign loans, as well as tax and service revenues.

The position of foreign exchange reserves is equivalent to financing 6.3 months of imports or 6.1 months of imports and payment of government foreign debt, and is above the international adequacy standard of around 3 months of imports.

"These foreign exchange reserves are able to support the resilience of the external sector and maintain macroeconomic and financial system stability," he said.

Going forward, Bank Indonesia views that foreign exchange reserves will remain adequate, supported by maintained economic stability and prospects, in line with the policy mix response adopted by Bank Indonesia in maintaining macroeconomic and financial system stability to support sustainable economic growth.

Ibrahim estimates that the rupiah will fluctuate but will close higher in trading Monday, December 11 in the price range of IDR 15,490- IDR 15,550 per US dollar.